PROTECTIONISM. – Protectionism is part of that artificial system of expedients and maneuvers which constitutes economic policy.
I. PROTECTIONISM AND FREE TRADE
1. Antagonism
The antagonism between free traders and protectionists reproduces the age-old conflict between theory and practice, or rather between incomplete and imperfect theories and disorderly empiricism. More precisely, the antagonism is between pure economics and practical economics, the latter being reduced, in the absence of a true applied economic science, to business practice and the economic policy of governments. Since pure or theoretical economics has hitherto failed to provide rational solutions to the problems of reality, free traders vainly take offense at the claim that international exchanges do not ensure equal and reciprocal advantages for the two contracting parties, and indeed inevitably harm one party while allowing the other to enrich itself unduly. In this way, they perpetuate the illusion of the early economists, who believed that a new science of social life could, in its applications, disregard the deep-rooted customs of an economic history already centuries old, and the differing conditions of national development, which are still evident in the general imbalance of prices, and particularly in the price of labor.To remedy this imbalance without incurring the dangers of protectionism, economic means must be employed: replacing the barbaric preconception of necessary struggle and the confused episodes of such a struggle with the secure and orderly progress of science, and a beneficial international division of labor within an atmosphere of peaceful agreements and free exchanges governed by self-interest (v.).
2. From protectionism to planning
While free trade represents a natural and logical state of economic life and thus has at least a scientific value as a hypothesis and an ideal tendency, protectionism is part of that artificial system of expedients and maneuvers which constitutes economic policy: a system of privileges and stimulants that, through the retaliations and reprisals it provokes, soon proves insufficient and must be intensified, ruining—like all stimulants—the material and moral health of individuals and society.Protectionism arose from the need to protect the emergence, preservation, and prosperous development of national industries, agriculture, and even commerce from the competition of similar foreign industries, agriculture, and commerce. It is a corrective to the lower prices of foreign goods and labor compared to national ones, achieved mainly by raising those prices to the level or above the level of national prices through the imposition of customs duties on imports.
Other expedients of economic policy, within the framework of the same objective, include export subsidies, import licensing regimes, quotas and compensations, prohibitions on the introduction of certain goods or on immigration, as well as various monetary measures. To these are added purely domestic provisions, such as controls on new industrial plants, manipulation of excise taxes, contributions, tax exemptions and facilities, state financing (direct or indirect), which complete the picture of what is now called “controlled economy,” or “dirigisme,” or the “third way.” All of this is inevitably destined to lead to a planned economy (v. PLANNING); and ultimately to a state economy, whether nationalist or communist.
Like all unnatural regulations, protectionism may serve excellently for a specific, limited purpose and for a not very long time. However, when it becomes the ordinary system of economic policy and is applied on a large scale, it rapidly loses its effectiveness, both because producers grow accustomed to it and will no longer be able to do without it, and because of the reactions and reprisals of the nations affected by the system. At this point, protectionism begins to cause serious and growing harm to the country that adopts it, by creating privileged situations that benefit certain groups and categories, especially the least deserving, and by harming all consumers, who are forced to bear a continuous rise in prices. Finally, it leads to increasing difficulties in trade as a result of the tariff wars it provokes. Thus, once protectionism is applied in a country, it rapidly spreads to others, takes root, and must be intensified; its reduction becomes increasingly difficult, and its elimination almost impossible. The continuous drafting of trade treaties and new tariffs, the proposed customs unions, and similar measures do not represent certain and decisive steps toward dismantling tariff barriers and toward the desired free mobility of goods, people, and capital. It is necessary to address the economic causes of the system, not merely its practical manifestations.
II. HISTORICAL NOTES
Historically, protectionism finds its origins in the mercantile system of Colbert in France and Cromwell in England in the 17th century, but as an idea and a proposal for commercial hegemony, it dates back to the most ancient times. In its current forms, it began with the formation of the Confederation of the United States of America, which, given the circumstances of its creation, was born protectionist, even while maintaining the most enthusiastic and convinced free trade among its constituent states. The “economists” of the late 17th century condemned protectionism with the celebration of free trade (laissez faire, laissez passer), and with its victory in the struggle initiated in England in 1838 by the Manchester School, particularly by Cobden, against the Corn Laws, which concluded in 1846 under Peel’s ministry. In 1872, France under Thiers attempted protectionism to recover from defeat, but without success; Germany under Bismarck, however, succeeded in 1879 in firmly establishing the industrial and military power of the German Empire. From then on, one after another, in more or less veiled or radical forms, all states began to surround themselves with tariff barriers, encouraged not only by commercial reasons and the need to defend industries useful for war, but also by the demands of the early socialist-leaning labor movements and the early large trusts in various branches of fundamental industries—true economic and political powers within individual states.
This was the cause of the rapid degeneration of a system that had some utility in certain circumstances but instead ended up poisoning international life for over half a century with jealousy, envy, and a spirit of retaliation, paving the way for numerous wars and ultimately the outbreak of the two great world conflagrations.